‘Material Information’: A Potential Conveyancing Revolution
By Jeremy Raj, Head of Residential Property.
“Sometimes new laws come in with a bang, in other cases they sit on the statute books until other factors drive them forwards.” This is our description of the Consumer Protection Regulations (CPRs) as National Head of Residential Property.
Described as ‘the biggest change to the UK consumer protection framework for almost 40 years’, the CPRs came into force in 2008 in compliance with a European directive. Given the regulations didn’t arise as a result of pressure from consumers, industry, or any other active special interest group, the fact is they’ve been largely ignored – until now.
National Trading Standards Estate and Letting Agency Team have announced new guidance on what amounts to ‘material information’. This is the information which must be provided up-front to a buyer in a residential property transaction. The Law Society is also currently working on launching a new digital information form to capture this information. Together these events may completely change the conveyancing process.
Regulation 3 of the CPRs prohibits unfair commercial practices. This includes a misleading action (regulation 5) and a misleading omission (regulation 6). Failing to provide material information would amount to a misleading omission. Breaching the CPRs gives rise to a criminal offence, with prosecutions handled by the National Trading Standards team. Offenders could receive an unlimited fine and a prison sentence up to two years.
In 2019, a Reading-based estate agent was prosecuted for failing to pass information onto a buyer about unsafe cladding. The court upheld that this was material information within the provisions of CPRs. Furthermore, the requirement to provide material information wasn’t limited to the agent’s particulars but was an ongoing obligation throughout the transaction. This has led to some consideration of what amounts to material information for a residential property transaction.
Under the regulations, material information is defined as ‘the information which the average consumer needs, according to the context, to take an informed transactional decision.’ But who’s the ‘average consumer’ when it comes to a residential property purchase? Especially when a single property could attract a downsizing couple on their fifth purchase, a first-time buyer, or a seasoned developer looking for an investment opportunity. The ‘average consumer’ can vary drastically. What’s material to one, may be of no interest to the other.
It was exactly this problem which led Trading Standards to launch a project to provide agents with a list of ‘material information’ and the level of detail required.
Trading Standard’s project collaborates with a range of stakeholders, including property portals, agents and consumers. The aim is to balance the protection of the consumer alongside realistic expectations of estate agents’ ability to acquire the information and sellers’ desire to have a property on the market without delay. Property portals are already making changes to allow agents to add this information and to inform buyers of why it’s important.
The recent announcement may seem a minor change, requiring that property listings include council tax bands, price, and tenure from May 2022. Yet further phases are being developed and are likely to include the following:
Details of the tenure: If a property is leasehold, material information will include the ground rent (including reviews), service charge, and length of the remaining term. If the property is shared ownership, material information may include details of the share owned, the rent payable and staircasing opportunities. For commonhold it may include details of the obligations and rights under the commonhold framework
Price: As well as the purchase price there may be an emphasis on ongoing costs, such as utilities and council tax. The current cost of fire safety measures (such as waking watch) is likely to feature as well
Physical characteristics, including whether a property is listed, parking provisions and whether it has unsafe cladding
Flooding or environmental issues.
The Law Society have also been approaching the issue from a similar starting point. They are launching a new digital information form (TA6, Part 1) to capture up-front information.
The introduction of the form will go some way towards making early-on instruction of conveyancer’s best practice within the industry. Conveyancers are being encouraged to ready themselves with processes to accept instructions in this way, but a fundamental change of this nature would seem to require an industry-wide campaign which is yet to materialise.
Up-front information is not a new concept. Home Information Packs (HIPs) were scrapped in 2010, having failed to cut the number of house sales from falling through and causing substantial delays in getting properties on the market. Despite this failure, the property industry has often cited that up-front information is key to improving the conveyancing procedure. The Home Buyers and Sellers Group ran pilots in 2020 using their own Buying and Selling Property Information form (BASPI). The Law Society is hoping that digitalising the process will avoid some of the historic pitfalls and it’s also worth noting that unlike HIPs, the new forms will not trigger a requirement for searches or survey.
The current TA6 form, known as the Property Information Form, is usually provided to a seller when instructing their conveyancer. This normally only happens once a buyer has been found. The seller completes the form and returns it to their conveyancer, who in turn sends it on the buyer’s conveyancer with the contract pack. If there was any issue with the information contained within this form, this would be the earliest time the buyer’s conveyancer could inform their client. This could be some two or three weeks after the buyer’s offer has been accepted. The TA6 (part 1) extracts some of these questions, hoping to settle any concerns of the buyer early on. However, it’s perfectly conceivable that in many cases buyers will either ignore the information, or feel they need to take legal advice. The question arises as to whether conveyancers will be prepared to carry out this work and whether buyers will wish to pay for it. There are already initiatives within the industry to offer this service to sellers.
Pressure will be on selling agents to provide this information, some of which may not be readily available, and which the seller themselves may not know. In the current conveyancing process, some of this information is ascertained from the conveyancer or surveyor as part of their investigations of the property. If the conveyancer is instructed before the property is put on the market, they’ll be able to conduct a ‘property check-up’ to highlight any issues which may arise. In doing so, they’ll provide the information to the agent. This will also allow the seller to take steps to rectify the issues, rather than only dealing with them when discovered by the buyer. However, it remains to be seen whether conveyancers will be able to find time in their diaries to carry out this work, which could be extensive, or indeed whether sellers will be prepared to pay for it before a buyer has been found.
In the meantime, agents should be cautious not to view this as a tick-box exercise. Once all phases of the project have been introduced, simply completing the form is unlikely to meet the requirements under CPRs. Especially when some of the information will require details of a technical legal nature such as restrictive covenants or lease terms.
Although the changes may appear to be simply a question of timing, they’ll alter the conveyancing process and the property industry fundamentally. Will completing an extra form or instructing a conveyancer before marketing a property put sellers off? Or cause substantial delays in getting property to the market? Will buyers understand the information, and will they acquire value from it?
The truth is that until now, most people making an offer on a house or flat have been woefully uninformed and had to hope that the conveyancing/survey process wouldn’t reveal anything that would cause them to change their minds about whether to proceed – or whether the price they offered was correct. The potential for wasted time, money and emotional cost has been a flaw in the system since inception.
In spite of the uncertainties, we can at least be hopeful that these changes will usher in an era of fewer nasty surprises during the conveyancing process and that offers on properties will be based on a much better understanding of them.
Look out for our podcast with guest Speaker Kate Faulkner, Property Expert and Emma Cooke Emma Cooke, Policy and Information Manager, Trading Standards where we will discuss the how this will impact the property market.
